I have lived and worked in China for 15 years, much of that as a journalist for Reuters writing about Chinese companies. I currently live in Shanghai where I teach financial journalism at Fudan University. I write daily on my blog, Young’s China Business Blog (www.youngchinabiz.com), commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. I am also author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.”

Rupert Murdoch's Split: Divorcing Wendi, China Or Both?

It’s been relatively quiet in China these last few days due to the Dragon Boat holiday, so I thought I’d start the new week with a look at Rupert Murdoch‘s ongoing divorce with Wendi Deng and what it might mean for his flagship News CorpNews Corp (Nasdaq: NWSA) in China. Many believe that Deng, a China native, was one of the main forces behind Murdoch’s previous bullishness on China, leading News Corp aggressively try to develop the market in the decade from 2000 to 2010. But the company has sharply reversed its China approach over the last 3 years, perhaps reflecting the deteriorating marriage between Murdoch and Deng.

So the question now becomes: How important was Deng to Murdoch’s China strategy, and will the divorce mean that News Corp will continue to withdraw from or simply ignore the market? I suspect the answer is that News Corp will make some limited investments in China over the next few years, since the market is too big for the company to ignore. But without Deng’s encouragement and connections, the pace of investment is likely to be slow and perhaps not very smooth.

All that said, let’s do a brief recap of News Corp’s major activities in China over the last 13 years to see how the company’s approach has evolved. Murdoch became openly bullish on the market shortly after marrying Deng 14 years ago, though it has never been clear if Deng was the source of his bullishness or instead the marriage was just part of his “China fever”.

Whatever the case, News Corp suddenly became quite aggressive in China, landing one of the first foreign licenses to own its own TV channel when Beijing opened the market in the early 2000s. Around the same time, News Corp also invested in newly established China-focused broadcaster Phoenix Satellite Television (HKEx: 2008), and made smaller investments in other media companies including Internet firm NetEase (Nasdaq: NTES).

But then News Corp, and most other western media firms, saw their slow march into China suddenly come to a halt in the mid-2000s amid an unexplained reversal by Beijing. News Corp took a relatively major blow after Chinese regulators openly criticized it for trying to form an illegal tie-up with the regional broadcaster in Qinghai province. News Corp remained largely silent after that amid growing tensions with Beijing regulators, who maintained a tough stance towards foreign media.

Then in 2010, the company abruptly announced it was selling its China TV station, Xingkong, to a fund connected with Shanghai Media Group (SMG), China’s second largest media company. In March this year, News Corp dumped shares in Phoenix, bringing its stake in the company to 12 percent from an original 37.5 percent when it first made its investment. (previous post)

While other entertainment groups like Time WarnerTime Warner (NYSE: TWX), Disney (NYSE: DIS) and DreamWorks AnimationDreamWorks Animation (Nasdaq: DWA) have been quite bullish on China over the last 2 years amid a broader re-opening of the market, News Corp has been mostly silent during that time. The one exception has been its small investment in a local movie producer called Bona Film (Nasdaq: BONA) about a year ago. (previous post)

It does seem a little too coincidental that Murdoch’s divorce comes even as other foreign companies are showing renewed interest in the China market. I suspect that Deng’s fading influence is at least partly to blame for News Corp’s fading interest. Accordingly, I wouldn’t look for too many major Murdoch initiatives in China in the next year or two, especially in Shanghai where Deng had strong connections.

Bottom line: News Corp’s recent China pullback could be partly linked to Rupert Murdoch’s divorce, with few major new investments likely in the next 2 years.

Doug Young is a former China company news chief for Reuters who teaches financial journalism at Fudan University in Shanghai. To read more of his commentaries on China tech news, click on www.youngchinabiz.com.

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Re: “But without Deng’s encouragement and connections, the pace of investment is likely to be slow and perhaps not very smooth.”

Given her background, I doubt Ms. Deng had any contacts of value. That alone would be more than enough to explain News Corps lack of success in China. The divorce, it seems, might have originated here. For Rupert and News Corp, it appears Ms Deng has been a very expensive acquisition that hasn’t panned out.

It will be interesting to see where the Dragon Lady’s influence appears next. I’m putting my money on Hollywood. She already has influential friends (and their influential friends) in the business. If I were married to any of the big names in the industry, I wouldn’t want her as a friend. However, is Wendi simply a completely greedy, morally corrupt person, or is she a lady with an agenda?